France Thumbs Nose at Obama Over Sanctions: Will Deliver Two Warships to Russia

by Wolf Richter • May 14, 2014 • Comments Off on France Thumbs Nose at Obama Over Sanctions: Will Deliver Two Warships to Russia

The battle between the US and France has been brewing for months, but now it came to a head: the French government decided to spite the US and move forward with the contract to deliver two warships to Russia. To heck with those silly sanctions.

At issue: a €1.2 billion contract between France and Russia, signed with all sorts of fanfare in 2011 for two assault and command ships. They’d be built at a shipyard with nearly empty order books, the storied Chantiers de l’Atlantique at Saint-Nazaire in France. It was about maintaining jobs. The Mistral ships can carry helicopters and tanks. Now the Vladivostok is being tested at sea and is to be delivered to Russia in October. It’s destined for Russia’s Pacific fleet. The Sebastopol, to be delivered in 2016, is for Russia’s Black Sea fleet and will be based in the now politically inconvenient Crimean port of Sebastopol.

The Obama administration has been pressuring France for months to cancel the sale to punish Russia for its involvement in the Ukrainian fiasco, given the sanction spiral that the US and to a lesser extent the EU have been trying to impose on Russia. The administration argued that the deal could encourage Russia to continue its land grab in the Ukraine.

So French Foreign Minister Laurent Fabius was in Washington on Tuesday, schmoozing with Secretary of State John Kerry. They discussed hot-button issues, such as the Ukrainian fiasco and nuclear diplomacy, if you can call it that, with Iran. Initially it was thought that those two ships would be on the agenda as well, and that Kerry could make France cancel that dang contract.

But Kerry didn’t bring it up during the conversation, Fabius told reporters afterwards. Due to legal considerations, France couldn’t cancel the contract. “Contracts that have been signed have to be honored,” he said. Business is business. And jobs are jobs, especially in France where unemployment has been in the double digits.

State Department spokesperson Jennifer Psaki told reporters that the US government had expressed its worries about this sale to the French government, and that it would continue to do so. Good luck. On Saturday, President François Hollande had set the tone; sanctions or no sanctions, France would stick to the contract “for now.”

But there had been doubts. On March 17, as the debacle of the referendum in Crimea was causing political blood to boil over, Fabius slapped at Russia, declaring brashly, without apparently having checked with his domestic policy authorities, “If Putin continues doing what he’s doing, we can consider canceling the sales.”

The next day, Russia slapped back at France, and hit where it hurt the most, the French domestic policies of a government already despised by much of France. “France is starting to betray the trust we have in it as a reliable supplier,” announced Russian Deputy Prime Minister Dmitry Rogozin, who is also in charge of the defense industry.

Arms manufacturing and exports is a big and partially state-owned business in France. A lot of jobs depend on it. It’s heavily unionized, and no one in the political hierarchy is allowed to get in its way. Sullying France’s reputation as a “reliable supplier” would put the industry at risk. Which would not be tolerated.

Two days later, Russian Deputy Defense Minister Yury Borisov chimed in, warning that, if there is a breach of contract, Russia would pursue its rights “to the end.” Russia would “require compensation for any losses it may suffer.” Penalties for breach of contract were included in the agreement, he said, but didn’t specify any amounts. “We’re not there,” he said. “I hope the French side will still weigh the pros and cons, and make the right decision.” And then another hit below the belt for French arms exporters: any breach would undermine the reputation of France “facing the international community.”

And so France has made “the right decision,” from Russia’s point of view, but for domestic reasons. The arms industry in France is a key part of France’s industrial policy, regardless of which party is at the helm. Orders at the Chantiers de l’Atlantique, famous for building the largest cruise ships and supertankers, evaporated during the financial crisis, and the subsequent economic crisis in France. Existing orders were cancelled. Its future came into question as employment shriveled to record lows.

In November 2012, the unions vociferously begged the government to nationalize the shipyard to protect the remaining jobs. The French state already owns 33.34% of it. The remainder belongs to STX Europe, one of the world’s largest shipbuilders. Headquartered in Oslo, it in turn is a subsidiary of the Korean group, STX Corporation. So nationalization would have been complicated. It would be easier to pull in some new orders. Hence the Mistral contracts with Russia. And the importance of the perception that France is a “reliable” arms supplier, as Rogozin put it, that wouldn’t dance to the cacophonous tunes of American foreign policy.

Good news for the Chantiers de l’Atlantique: recently, orders have rematerialized and hope has reinserted itself into the picture. Bad news for sanctions: in France, as well as in Germany and elsewhere in Europe, the sanction spiral is fine and dandy, but business is business, and during these tough times, no one is allowed to get in the way of it.

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